Question when one of law.

The Appellate Tribunal, Madras Bench, referred under section 66(1) of the Income-tax Act the following question for the opinion of the High Court:

“Whether there is any material for the finding that the dealing in forward contracts carried on by the applicants in the Rangoon grain market is a distinct and separate business from the dealing in ready goods of same commodities.”

The facts relevant for the case are as follows:The applicants are an undivided Hindu family carrying on business in grains and rice at Tuticorin and Virudunagar. The mode adopted by them in the business is to buy grain and rice at Rangoon through their agents and import them to Tuticorin where the goods are sold. In the accounting year 1937-38 they also carried on business in what are described as Satta contracts or forward contracts of purchase and sale and dealing in differences. Such contracts related also to the same commodities in respect of which they had also made ready purchases. In the next year of account 1938-39 they did not deal in forward contracts, but revived them again in the two succeeding years. These dealings in forward contracts ended in loss which was larger than the profits earned by ready purchases and sales. The forward contracts were entered into through commission agents at Rangoon who submitted from Rangoon from time to time statements of account to the assessees at Tuticorin. The dealings relating to the Satta business were entered in a separate folio in the accounts. In the accounting year 1941-43, i.e., the assessment year 1942-43, the loss incurred inrespect of the forward contracts was carried forward into the accounts, and the assessees claimed a right to set off this loss against the profits they earned during the period, under section 24(2) of the Income-tax Act. During this assessment year, however, the assessees did not enter into any contracts for future deliveries. The Income-tax officer disallowed the claim to set off on the ground that the Satta business was not the same business as the business of purchase and sales of paddy but was a distinct business which the assessees carried of and on. The Income-tax Officer was also of the opinion that under the forward contracts there was no intention to take delivery of the goods; but the main object of the assessees was to take advantange of the fluctuations in the market at Rangoon. The forward contract business was therefore, according to the Income-tax Officer, not a business carried on for the benefit of the grains trade which the assessees carried on at Rangoon. The assessees appealed to the Appellate Assistant Commissioner but were not successful as the Appellate Assistant Commissioner also was of opinion that the speculation business in the differences which resulted in a loss was distinct and separate from the grains business carried on by the assessees at Turicorin. This was confirmed by the Appellate Tribunal on the ground that the speculation business was not necessarily an incident of the business of the dealings in grains, that there was a marked distinction between the two activities, and that there was no common or unifying feature between the two.

The fundamental question that arises for decision is therefore whether the two lines of business carried on by the assessees constitute the same business within the meaning of section 24(2) of the Income-tax Act or distinct businesses. Under clause (2)

“Where any assessee sustains a loss of profits or gains in any year, being a previous year, not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940,. under the head” Profits and gains of business profession or vocation “and the loss cannot be wholly set off under sub-section (1), the portion not so set off shall be carried forward to the following year and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year; and if it cannot be wholly so set